Gibson Energy Inc. enters into an Arrangement Agreement to Acquire Palko Environmental Ltd.

Oct 17, 2011

All financial figures are in Canadian dollars unless noted otherwise

CALGARY, Oct. 17, 2011 /CNW/ - Gibson Energy Inc. ("Gibson"), TSX: GEI, and Palko Environmental Ltd. ("Palko"), TSX: PLK, are pleased to announce that they have entered into an agreement providing for the acquisition by Gibson of all of the issued and outstanding common shares of Palko ("Palko Shares") not already owned, directly or indirectly, by Gibson (the "Transaction"). Under the terms of the Transaction, shareholders of Palko may elect to receive either: (i) 0.1717 of a common share of Gibson ("Gibson Share") for each Palko Share; or (ii) $3.05 cash for each Palko Share; or (iii) a combination thereof. The total cost to Gibson is approximately $62.7 million, including the assumption of estimated net debt of approximately $15.95 million.  When combined with Gibson's investments in Palko to date pursuant to which Gibson has acquired approximately 39% of the outstanding Palko Shares, Gibson is paying an effective price of approximately $2.26 per Palko Share in order to acquire 100% of Palko.

The Transaction will expand Gibson's Canadian custom terminal operations to include water disposal services and oilfield waste management. "The acquisition of the remaining interest of Palko is a key step in forming this platform to meet the ever increasing water disposal services and oilfield waste management needs of the oil and gas industry in North America" said Stew Hanlon, President and Chief Executive Officer of Gibson.  "Palko represents a strategic acquisition for Gibson. Combined with our recent investment in the Plato Pipeline, Treating and Disposal facility ("Plato") and development plans for our Rimbey Custom Terminal ("Rimbey"), it creates a service offering in western Canada that will make Gibson a significant player in this space."  The combined platform, including Palko (100% interest), Plato and Rimbey, represents an investment by Gibson of $82 million for a total estimated EBITDA contribution of $16 million per year when fully operational.  A detailed description and location map of these assets are in the Appendix of this press release.  "This expansion of Gibson's custom terminal service offering across western Canada will create additional benefits in our trucking and marketing businesses due to the integrated nature of our business model." said Mr. Hanlon.

Jay Simmons, Chairman and CEO of Palko commented: "This transaction recognizes the tremendous underlying value that has been created by the exceptional team we have assembled at Palko and provides shareholders with an attractive premium to recent trading values. We have grown to know Gibson well over the past few years: they are a world class organization that has been a wonderful partner in Palko's success. We are delighted to see the Palko team be provided the opportunity to accelerate its growth with Gibson."

The Transaction is to be completed through an arrangement pursuant to the Business Corporations Act (Alberta) and is expected to be completed by the middle of December 2011. Completion of the Transaction is subject to approval by Palko shareholders, court approval and regulatory approvals. The Board of Directors of Palko has unanimously determined, with the nominees of Gibson abstaining, to recommend that Palko shareholders vote their Palko Shares in favour of the Transaction. Certain shareholders of Palko, collectively holding or controlling approximately 42.9% of the Palko Shares (81.8% of the Palko Shares when combined with the Palko Shares already owned by Gibson), have entered into agreements with Gibson whereby they have irrevocably agreed to vote their Palko Shares in favour of the Transaction.

The terms of the Transaction prohibit Palko from soliciting or initiating any discussion regarding any other business combination or sale of material assets, includes provisions for Gibson to match competing, unsolicited proposals and, subject to certain conditions, provides for a $3.0 million break fee payable by Palko to Gibson.

FirstEnergy Capital Corp. is acting as financial advisor to Palko with respect to the Transaction and has advised the Board of Directors of Palko that it is of the opinion, as of the date hereof and subject to review of the final documentation, that the consideration to be received by the Palko shareholders pursuant to the Transaction is fair, from a financial point of view, to the Palko shareholders (other than Gibson and its affiliates).

Scotia Capital Inc. is acting as financial advisor to Gibson with respect to the Transaction.

About Gibson

Gibson is one of the largest independent midstream energy companies in Canada and a major participant in the crude oil transportation business in the United States, and is engaged in the movement, storage, blending, processing, marketing and distribution of crude oil, condensate, natural gas liquids, and refined products. Gibson transports hydrocarbons by utilizing its integrated network of terminals, pipelines and truck fleet, located throughout western Canada and the United States.

Gibson's shares trade on the Toronto Stock Exchange under the symbol GEI.

Gibson's primary objective is to generate stable and growing cash flows for shareholders through an attractive dividend and a growing asset base.

About Palko

Palko provides processing and disposal of oilfield and industrial wastes through its network of waste handling and hydrocarbon recovery facilities located across Alberta and Saskatchewan. Palko's focus on client service extends to custom oil treating, waste oil reclamation and crude oil market access for customers.

Palko services support all aspects and stages of oil and gas exploration and production, including drilling, fracturing, completion, production and subsequent abandonment and reclamation. In addition, Palko provides hydrocarbon recovery and waste management solutions for a variety of non-oilfield and industrial wastes of similar composition.

Forward-Looking Statements

Certain statements contained in this news release constitute forward-looking statements. These statements relate to future events or Gibson's and Palko's future performance. All statements other than statements of historical fact are forward-looking statements. The use of any of the words ''anticipate'', ''plan'', ''contemplate'', ''continue'', ''estimate'', ''expect'', ''intend'', ''propose'', ''might'', ''may'', ''will'', ''shall'', ''project'', ''should'', ''could'', ''would'', ''believe'', ''predict'', ''forecast'', ''pursue'', ''potential'' and ''capable'' and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although Gibson and Palko believe these statements to be reasonable, no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon.  Such statements include the closing of the Transaction, the acceleration of Palko's growth and the creation of additional benefits in Gibson's trucking and marketing business.  Gibson's and Palko's actual results could differ materially from those anticipated in these forward-looking statements as a result of the Transaction not closing when planned or at all;  the failure of Gibson and Palko to obtain the necessary regulatory, shareholder and other third party approvals required in order to proceed with the Transaction; regulatory decisions, competitive factors in the industries in which Gibson and Palko operate, prevailing economic conditions, and other factors, many of which are beyond the control of Gibson and Palko. The forward-looking statements contained in this news release represent Gibson's and Palko's expectations as of the date hereof, and are subject to change after such date. Gibson and Palko disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by applicable securities regulations.

Appendix

Palko Environmental Ltd.

  • Palko has approximately 80 employees and operates 6 waste management and custom treatment facilities within Alberta and Saskatchewan, plus 2 new facilities currently under construction in Saskatchewan.  Facilities treat, recover and dispose of water, oils and solids found in oil and gas field wastes, including produced water and completion water, workover fluids, frac fluids, drilling fluids, drilling muds and wastes from spills.  Facility locations:
    • Claresholm, AB;
    • Grande Cache, AB;
    • Mayerthorpe, AB;
    • Rycroft, AB;
    • Midale, SK (2 facilities); and
    • Two new facilities under construction at Oungre, SK and Stoughton, SK are expected to be operational in Q4 2011.
  • Experienced operational and business development employees who will bring to Gibson additional knowledge and expertise in the water disposal and oilfield waste management sector.
  • Facilities are located in key producing regions of Alberta and Saskatchewan and are a good fit with Gibson assets with very little overlap.
  • Palko currently has a master services agreement with Gibson trucking business to haul all clean crude out of the Palko facilities and a contract under which Gibson performs crude marketing services on behalf of Palko.

Plato Pipeline, Treating and Disposal Facility

  • The Plato Pipeline represents approximately 45 miles of 4" pipeline that runs southeast from the IPF Mid-Saskatchewan Pipeline System to the Plato oil pool.
  • In August 2011, Gibson purchased a 50% interest in the Plato Pipeline from Midroy Energy and agreed to jointly own/construct an oil treating and water disposal facility near Plato, Saskatchewan.
  • The Saskatchewan Viking area is an industry growth area that is lacking in mid-stream infrastructure.
  • The majority of the emulsion volumes received at the treating facility will arrive by truck; therefore, Gibson trucks will have the opportunity to transport these volumes.
  • Gibson will own 50% and operate the treating and disposal facilities and the pipeline.
  • The project includes:
    • Construction of a 3,000 bbl/day treating facility with expansion capability to 5,000 bpd, associated truck receipt and tankage;
    • A water disposal well and water injection pipeline; and
    • Connection to the IPF Mid-Saskatchewan pipeline at Dodsland.
  • Total capital investment of approximately $4.5 million.
  • Facility construction will begin shortly and is expected to be operational in Q1-2012.

Rimbey Custom Terminal Expansion

  • Gibson's existing Rimbey Custom Terminal is located in a very active area for Cardium reservoir development.  There is a shortage of emulsion treating capacity in the general Rimbey area thus creating an opportunity to add an emulsion treating facility together with a connection to the adjacent Pembina Bonnie Glen Pipeline.  In the Grand Prairie area, the Duvernay shale zone is primarily liquids rich gas, but closer to Rimbey it is more oil prone.  The Duvernay shale zone is just beginning to be developed in the Rimbey area.  An emulsion treating facility at Rimbey will attract Duvernay emulsion volumes as this zone gets evaluated.
  • The project includes:
    • Construction of a 3,000 bbl/day treating facility with expansion capability to 5,000 bpd; and
    • Associated truck receipt, tankage and butane blending facilities.
  • Total capital investment of approximately $4.4 million.
  • Regulatory work is under way; therefore, proceeding with construction is subject to regulatory approval. The facility is expected to be operational by Q2-2012.

Image with caption: "Location Map (CNW Group/Gibson Energy Inc.)". Image available at: http://photos.newswire.ca/images/download/20111018_C4951_PHOTO_EN_4989.jpg

Image with caption: "Gibson Energy Inc. enters into an Arrangement Agreement to Acquire Palko Environmental Ltd. (CNW Group/Gibson Energy Inc.)". Image available at: http://photos.newswire.ca/images/download/20111018_C4951_PHOTO_EN_4993.jpg


For further information:

Gibson Energy Inc. 

Ken Hall
Vice President Investor Relations and Communications
Office:  (403) 781-2899       Cell:  (403) 869-7155
ken.hall@gibsons.com

Palko Environmental Ltd. 

Jay Simmons
Chairman and Chief Executive Officer
Tel: (403) 508-6001
jays@palko.com

Corey Zahn
VP Finance and CFO
Tel: (403) 508-6002
coreyz@palko.com